Halal Investing in Canada: Your Complete Guide

Investing according to Islamic principles, or Halal investing, is becoming increasingly significant for Muslims in Canada. With over one million Muslims living and working in the country, the need for Sharia-compliant financial products is on the rise. Halal investing allows observant Muslims to save for retirement and plan for financial goals without compromising their religious values. In this guide, we will explore what Halal investing entails, its principles, and the options available for Canadian investors.

What is Halal Investing?

Halal means “permissible” in Arabic, and Halal investing refers to investment practices that comply with Islamic or Sharia Law. For Muslims, this means avoiding certain financial activities and products that contradict their ethical and religious values.

Key Principles

1. No Interest (Riba): Islamic law prohibits earning interest. Therefore, Halal investors avoid fixed-income investments like bonds and savings accounts that pay interest.
2. Avoiding Speculation (Gharar): Halal investing discourages high-risk speculative investments such as day trading, short-selling, and options trading.
3. Profit and Loss Sharing: Investors should engage in profit-sharing ventures rather than lending money. This means investing in stocks rather than bonds.
4. Ethical Business Practices: Investments should be in companies that do not engage in activities forbidden by Sharia Law, such as alcohol, tobacco, gambling, pork, pornography, and weapons.

Why Halal Investing Can Be Challenging in Canada

Halal investing in Canada poses challenges due to the restrictions on common investment vehicles. Traditional investments such as GICs, bonds, options, futures, and bank stocks are considered haram (forbidden). However, there are still numerous opportunities for Halal investors to grow their portfolios.

Available Halal Investment Options in Canada

Wealthsimple Halal Investing Fund

Wealthsimple offers a fund that simplifies the process for Canadian Muslims. The fund includes a diversified portfolio of 50 global stocks, all screened by a committee of Sharia scholars. Investors can hold this fund in tax-advantaged accounts like TFSAs and RRSPs, with management fees of 0.5% for investments up to $100,000 and 0.4% for higher amounts.

Sukuk Investments

Sukuk, or Islamic bonds, are a Sharia-compliant alternative to traditional bonds. Sukuk represents ownership in a tangible asset or a business venture, providing regular income through profit-sharing rather than interest. While Sukuk is more common in Asia and the Middle East, Canadian investors can access them through specialized financial planners or Sukuk ETFs like the SPSK Dow Jones Global Sukuk ETF (NASDAQ: SPSK).

Stock Picking and Halal ETFs

Halal investors can also pick individual stocks that comply with Sharia principles. Companies should derive no more than 5% of their revenue from haram activities, have less than 33% total debt relative to market capitalization, and maintain high accounts receivable compared to total assets. Replicating the Dow Jones Islamic Market Titans 100 Index is a practical approach. Notable compliant stocks include Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), and Canadian National Railway (TSX: CNR).

Alternatively, investors can opt for Halal ETFs like the S&P 500 Sharia Industry Exclusions ETF (INDEXSP: SPSIEUP), which includes permissible companies from the S&P 500 and has a management expense ratio (MER) of 0.45%.

Investing in Precious Metals

Precious metals like gold and silver are permissible in Halal investing. Investors can either purchase physical metals or invest in ETFs such as iShares Silver Trust (NYSE: SLV) and iShares Gold Trust (NYSE: IAU). These assets hedge against inflation and market volatility, typically comprising around 5% of a diversified portfolio.

Real Estate Investments

While conventional mortgages are forbidden due to interest, Sharia-compliant real estate investment options are available. Investors can consider real estate investment trusts (REITs) like the Ansar Financial and Development Corporation (CSE: AFD), which invests in properties in Alberta. Alternatively, partnering with others to purchase property outright is another viable option.

Although rooted in Islamic principles, Halal investing appeals to anyone seeking ethical investment options. By avoiding companies involved in activities like alcohol, gambling, and pornography, Halal investments align with broader socially responsible investing practices.

Halal investing in Canada allows Muslims and other ethically-minded investors to grow their wealth while adhering to their values. With a range of Sharia-compliant products and strategies, achieving financial goals without compromising religious principles is increasingly accessible.